The elimination entry to prepare the consolidated financial statements on December 31,20X7 would include a:

Question

Quizplus · Accepted Answer

The elimination entry is used to eliminate the intercompany transactions between the parent company and its subsidiary to avoid double-counting of the transactions in consolidated financial statements.

Option A: Debit to common stock for $812,500 is incorrect since it is not affected by elimination entries.

Option B: Credit to additional paid-in capital for $187,500 is incorrect since it is not affected by elimination entries.

Option C: Credit to Investment in Siena Co. for $744,000 is the correct option since it eliminates the investment account entry that was recorded when the parent company purchased the subsidiary's shares. This will reduce the investment account balance to zero, and any excess paid over the subsidiary's book value will be recognized as goodwill.

Option D: Credit to retained earnings for $350,000 is incorrect since it is not affected by elimination entries.

The Elimination Entry to Prepare the Consolidated Financial Statements on December